How to Record and Report Business Expenses

Recording and reporting business expenses is a missed opportunity for many business owners and employees. Much of what you spend for business purposes is tax-deductible. ​Knowing whether you can or can't expense a purchase for business purposes can be difficult. Nevertheless, here are a few general guidelines to help.
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​According to the IRS, business expenses must be ordinary and necessary to be deductible. That means they are normal and recognized in your business, as well as helpful and appropriate. You'll need to keep records (such as statements and ledgers) and supporting documents (receipts and invoices) to verify your deductions. Some expenses are subject to extra requirements, as described below.

Travel Expenses

​Travel expenses pertain to business trips and can include transportation to and from airports, your hotel and business meeting places. They also generally include lodging, meals, tips and other related incidentals.

• Do Maintain trip logs describing your business expenses and the purpose of each. If your trip is mostly for business but includes personal components, separate them in your log. These nondeductible personal items could include extending your stay for a vacation or taking personal side trips.
• ​​Do Deduct travel-related meal costs, but only up to the 50 percent limit allowed by the IRS.
• Don't Rely on estimates to determine if an expense is business or personal.
• Don't Deduct any of your travel expenses if your trip is primarily for personal purposes.
• ​Don't Deduct any of your meal costs if they could be considered unreasonably extravagant.

Entertainment Expenses

​Entertainment expenses need to be either directly connected to or related to the conduct of your business. That means that business is the foremost purpose of the activities and it's very probable you'll get income or future business benefits as a result. Expenses from entertainment that aren't considered directly related may still be deductible if they are associated with your business and occur just before or after a significant business conversation.

• Do Keep records of entertainment expenses, including who was present and clear descriptions of the nature, dates, and times of the relevant business discussions.
• ​Do Deduct up to 50 percent of entertainment expenses, as allowed by the IRS.
• ​Don't Claim the costs of pleasure boat outings or entertainment facilities (e.g., hunting lodges) that are not related to business activity.

Mileage

​Business use of your personal car is calculated according to your actual business-related expenses, or by multiplying your business mileage by the prescribed IRS rate (53.5 cents per mile in 2017).

• ​Do Log odometer readings for each business trip and record your business purpose.
• ​​Do Claim actual business deductions by applying the ratio of your business-miles-to-total mileage.
• ​Don't Claim mileage or expenses pertaining to commuting to and from work.